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Trial Lawyer Medicare Bonanza Averted — For Now

Wednesday, August 5, 2009

A stealth amendment to the healthcare bill would enrich trial lawyers and could pave the way for potentially massive class action suits.

The House version of the healthcare bill, which currently weighs in at about 800 pages, is festooned not merely with reform measures but with rewards and encouragements for political supporters. That’s the way Washington works—even in the era of Barack Obama.

When the bill got to the House Ways and Means Committee on July 16, it contained an especially audacious and egregious provision that could only be called a “trial lawyer earmark.” The 10-page measure would “open the door to massive liability that is neither in the public’s interest nor in the interest of the American healthcare system,” said Phil Goldberg, a lawyer who formerly served on the staff of the House Judiciary Committee and describes himself as a “lifelong Democrat.”

In a July 24 article in BNA’s Medicare Report, Goldberg wrote that the provision “would completely redefine healthcare litigation in this country by allowing freelance lawyers, without any checks and balances from Medicare, to sue anyone they could accuse of causing Medicare to spend money on its beneficiaries.”

The measure would let lawyers file suits against whole classes of defendants based, not on the evidence in an individual case, but on ‘relevant statistical or epidemiological evidence.’

The good news is that the provision was removed during a mark-up session—thanks to the efforts of Republican Reps. Dave Camp of Michigan and Eric Cantor of Virginia and to some Democrats as well.

The bad news is that it got into the bill in the first place—and that it could easily make a reappearance as the legislation moves through Congress. After all, trial-lawyer supporters tried to slip a similar measure into another bill in 2007. Alert legislators stopped that one too, but there’s no sign backers will relent. As one close observer of Congress told me, “It’s the end of the first half, and the opponents of the trial lawyers have a touchdown lead, but the game’s not over.”

The provision is arcane and “truly atrocious,” as Walter Olson, a senior fellow at the Manhattan Institute who serves as a legal-abuse watchdog, wrote recently.

It would drastically widen the ability of freelance lawyers, acting as what Olson calls “bounty hunters,” to sue in certain kinds of cases called Medicare Secondary Payer (MSP) actions.

Medicare frequently pays the entire medical bill for a beneficiary even though, in some cases, another party, such as a private health or workman’s compensation insurer, or an individual, might be liable for all or part of it. The law requires such a secondary payer to reimburse the Medicare outlay, but sometimes the payer ducks responsibility.

The proposed changes to the healthcare reform bill would bypass the court objections and pave the way for potentially massive class action suits.

Imagine, for instance, that a senior pedestrian, who is a Medicare beneficiary, is struck by a car. The senior runs up $30,000 in doctor’s bills and files a claim—or a lawsuit—against the car’s driver and his insurance company. Meanwhile, Medicare pays the beneficiary’s medical bills. A year later, the driver agrees to pay the $30,000 claim.

“Sometimes, at this point,” wrote Olson, “Medicare (i.e., the government) demands that the beneficiary hand over some or all of the settlement toward the cost of the healthcare.

“Under some conditions, however, [the government] is also free to file its own lawsuit to recover the medical outlays directly from the negligent driver (who in some circumstances might even wind up covering the same medical bills twice). It might file the suit directly if, for example, it does not expect to get a collectible judgment from the beneficiary.”

That is the way the system works now, according to the MSP Act. All well and good. But the provision that the trial lawyers and their backers got inserted into the healthcare reform bill goes far beyond the current law.

It would let lawyers file suits against secondary payers without asking the government for permission and, in Olson’s words, “collect rich bounties if they manage thereby to extract money from the defendants.” The measure would open the door to what’s called a “qui tam” procedure, which has “led to a growing body of litigation filed by freelance bounty hunters against universities, defense contractors, and others alleged to have overcharged the government.”

Even worse, the measure would let lawyers file suits against whole classes of defendants based, not on the evidence in an individual case, but on “relevant statistical or epidemiological evidence.”

In other words, the MSP would become a vehicle not simply to get back dollars recovered by others and owed to Medicare but instead to get utterly new dollars in damages recovered by no one.

As Goldberg writes: “The creative idea of using the MSP Act for such Medicare recoupment suits appears to have been born during tobacco litigation, where lawyers have tried invoking the MSP Act to seek double recovery of all the monies Medicare spent on smoking-related ailments.”

Previous attempts to use the MSP this way were knocked down by the courts. One federal judge said such lawsuits stood “the MSP statute on its head.” And Gladys Kessler, chief judge of the D.C. Circuit, stated, “Congress did not intend the MSP to be used as an across-the-board procedural vehicle for suing tortfeasors.”

The proposed changes to the healthcare reform bill would bypass the court objections and pave the way for potentially massive class action suits—without having to prove that the actions of third parties actually caused damage to individual beneficiaries.

This is the “lawyerly dream” of winning lawsuits “against liquor, gun, or cheeseburger purveyors,” a dream that, Olson writes, courts have consistently rejected over the past decade.

The measure would also allow lawyers and activists to sue without having the government or a Medicare beneficiary as a client. All the lawyers “would have to do is look through Medicare’s health-related expense reports and file a separate mass action against any company for all the monies that Medicare has or will spend on its beneficiaries’ care as a result of that company’s conduct or products,” writes Goldberg.

The stealth amendment for trial-lawyer enrichment has been almost completely ignored by the media, which have done a miserable job of describing the contents of the healthcare bills winding their way through Congress. Olson, on his blog, seems to be the first to note the measure’s existence—and only after it was shot down by Camp, Cantor, and the rest.

It was a close call. We will be watching much more carefully if the Senate Finance Committee—or the eventual conference participants—try to put the dangerous provision back in the healthcare bill.

James K. Glassman, former undersecretary of State for public diplomacy and public affairs, is president of World Growth Institute, which promotes pro-growth economic policies.

FURTHER READING: Glassman also wrote “Obama’s Guantanamo Problem—And Ours” on how Gitmo requires deep thought, not glib pronouncements.


Image by Darren Wamboldt/The Bergman Group.

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